What the Pros Say: Coordinated Cuts Coming

CNBC.com

Tuesday, 7 Oct 2008 | 8:40 AM ETCNBC.com

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Australia's Central Bank stunned the markets by cutting interest rates by a full point to 6 percent Tuesday, a reduction that was twice as big as economists predicted and the bank's biggest cut in 16 years.

There is lots of speculation that Australia's move is the first in a round of global coordinated interest rate cuts designed to boost world economies and markets.

Experts from around the world weigh in with whether or not a mass rate cut is in the works and whether investors can count on lower rates supporting stocks.

“A coordinated rate cut may have done some good before the market priced it in and didn’t get it,” says Steve Liesman, CNBC senior economics correspondent. Alas, it’s unlikely to make much difference now. Besides, even if the fed cuts rates 50 basis points, he adds, the ECB would have to make a much bigger cut. And that is not going to happen.

Politicians Should Get Their Act Together

"The European politicians should absolutely be getting their act together on this. This sort of crisis is absolutely about the management of confidence inside the markets and there is no way of restoring confidence inside the markets if there is no credible promise of government intervention on the right scale and in the right way," Chris Osborne, managing director at LECG Europe told CNBC.

"Frankly unilateral action by individual countries is not going to do it because of the cross-border effects within the banking system and because of the fact that as soon as one country announces deposit guarantees, it becomes incumbent on other countries to follow suit… And what's absolutely required here is the right kind of commitment to the right kind of policy delivered credibly. And for it to be delivered credibly, it has to be delivered at an EU level at a minimum, and preferably in coordination with Washington."

Fed Will Slash Rates

The Federal Reserve will cut the federal funds rate to 1 percent from 2 percent as early as next week, predicts Donald Straszheim, vice chairman of Roth Capital Partners.

Targeting the Wrong Problem

A coordinated rate cut will do little to fix the underlying problem of restoring trust to the banking industry, Harry Ida, senior analyst at Thomson Reuters, said.

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Japan Will Hold Steady

The Bank of Japan will keep rates at 0.5 percent, said Marco Bardelli, MD of BDG Singapore. Japan has no run on banks and inflation is still on the rise, so its central bank will be reluctant to cut, Bardelli said.

Japan Won't Join Bailout

There is very little leverage in the Japanese economy and the Bank of Japan would be against any coordinated response to the credit crisis, Colin Asher from Nomura International told CNBC.

Gross Backs Cut to 1%

Pimco's Bill Gross said the threat of inflation is long goneand that the Fed should make the big move and cut by 100 basis points.

Britain Should Cut Significantly

"The MPC will cut 50 basis points on Thursday. I think 25 is like using a pea-shooter against a tank…The real problem is what's going on in the wider economy now. Businesses are suffering… The bank has to cut rates and quickly," Anthony Gibbs, senior gilts broker at Vantage Capital Markets told CNBC, adding that Barclays, like other banks, are raising their charges for businesses by some 400 points, making businesses suffer even more during the economic slowdown.

"I think they should do 100 but the MPC is in such a problem that they're not going to be able to do that."

Euro to Weaken: Strategist

"We do face a weak euro now," Nick Carn from Odey Asset Management said as he discusses the European Central Bank model and European governments guaranteeing deposits.

Expect Low Rates Next Year

"Administered interest rates will be a lot lower a year from now," Nick Carn, global investment strategist at Odey Asset Management said.

"(Bank of England Governor) Mervyn King has been very courageous in holding the line here and not cutting interest rates until he's quite confident that inflationary risks have diminished, which I think they are rapidly doing."

Your Savings Are Safe

"Nobody is at risk of losing their savings at a British bank. But there is worry and the idea that you can make a guarantee explicit following the Germans may well be the next step. And of course the other step which is more controversial, and that I have been advocating, is that we need to have a really radical cut in interest rates. And the regime we've had for 10 years, and has worked very well, now needs to change the parameters somewhat," Vince Cable, deputy leader of the Liberal Democrats and shadow chancellor, said.

"There was never a time in which we need closer cooperation between governments, particularly within Europe, they fell apart whenever they needed to cooperate. When all the dust is settled, we are going to have to set up proper systems of governments and cooperation but it hasn't been there now and if the Germans are going to go out on their own with a deposit guarantee, then I'm afraid Britain's going to have to follow them."

Europe Should Join the Bailout

"Now is the time for Europe to step up to the plate," Tim Stocks from Taylor Wessing told CNBC, adding that the US bailout package should be part of a global solution.

Inflation is a 'Dead Issue'

Coordinated interest rate cuts would help the economy as "inflation is a dead issue," Stephen Koukoulas from Currency & Fixed Income Research told CNBC.

Contact Europe: Economy

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